    [Public Papers of the Presidents of the United States: George W. Bush (2004, Book III)]
    [December 15, 2004]
    [Pages 3077-3092]
    [From the U.S. Government Publishing Office www.gpo.gov]

    Remarks in a Panel Discussion on the High Cost of Lawsuit Abuse at the
    White House Conference on the Economy
    December 15, 2004

        The President. Listen, thank you all for coming. I've just come off
    a campaign--[laughter]--and spent a great deal of time talking with the
    American people about how to make sure America is the best place in the
    world to do business. And there was a lot of discussion in the course of
    the last couple of months about what's the best philosophy to make sure
    that jobs are created here, that the entrepreneurial environment is
    strong, that small businesses can flourish but, most importantly, that
    people find jobs close to home.
        And one of the things that I talked about was making sure that the
    environment for risking capital was conducive for job creation. And I
    tried to say that as plainly as I could. And one issue that I talked
    about, to make sure that costs were reasonable and that the cost of
    capital was reasonable, was legal reform, that the cost of frivolous
    lawsuits, in some cases, make it prohibitively expensive for a small
    business to stay in business or for a doctor to practice medicine, in
    which case, it means the health care costs of a job provider or job
    creator has escalated or is escalating.
        I talked about the competitive advantage that we must have in
    America if we expect jobs to stay here. The cost of lawsuits, relative
    to countries that we compete against, are high. In other words, the cost
    of litigation in America makes it more difficult for us to compete with
    nations in Europe, for example.
        And so I want to thank our panelists for coming today to help add
    some expertise to this notion that if we can achieve legal reform in
    America, it'll make it a better place for people to either start a
    business and/or find work.
        Now, there's much more to a comprehensive economic expansion program
    than just legal reform, but a cornerstone of any good program is legal
    reform. And there's a practical aspect to our discussions today, because
    I want the people who get to decide whether we're having legal reform to
    hear from experts, and that would be Members of the House and Senate
    from both sides of the aisle. I am here to not

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    only thank our panelists but to make it clear as I possibly can that I
    intend to take a legislative package to Congress which says we expect
    the House and the Senate to pass meaningful liability reform on
    asbestos, on class action, and medical liability.
        I want to thank my good friend Don Evans, who has served so well as the Secretary of Commerce. As
    you know, he has made the decision to go back to the State of Texas. I'm
    glad my departure was delayed by 4 years. [Laughter]
        Secretary of Commerce Donald L. Evans.
    So am I. [Laughter]
        The President. But I do want to thank him for serving so admirably, and I want to thank you for
    hosting this event.
        Secretary Evans. Mr. President, thank
    you so much. We have a very distinguished panel but a far-reaching
    panel. As you know, the issue of lawsuit abuse has many, many facets to
    it. And so I'm delighted that we have been able to assemble a number of
    people that look at it from an economist perspective, an academia
    perspective, a small-business perspective, a health care perspective,
    because there's many, many issues that relate to lawsuit abuse in this
    country.
        I want to thank you, Mr. President, for your leadership on this
    particular matter, your attention you've given to it. And I'm one of
    the--only one of those out there has--that have seen your focus on it
    for over 10 years. I remember full well in 1993, when you were running
    for Governor of the State of Texas, it was one of the very top issues on
    your agenda. And after becoming Governor, you led and you made a
    difference in that State. And because of the difference you've made in
    tort reform in the State of Texas, the State of Texas economy is a
    stronger economy than it otherwise would have been. And you're bringing
    that same leadership here to Washington, DC, and the Federal Government,
    because certainly there's things we can do in Federal Government that
    will create a better environment for entrepreneurs and small-business
    owners to create jobs and grow our economy, and it had to do with legal
    reform and lawsuit reform.
        Mr. President, you mentioned that I have served here for some 4
    years as Secretary of Commerce, and one of the things I must say: One,
    it was an honor to serve the American people, and it certainly has been
    under your leadership. But as I've traveled across America, the one
    thing that I hear time and time again among manufacturers as well as
    service companies is the burdens of lawsuits, the burdens of junk and
    frivolous lawsuits and how they continue to weaken our economy and make
    it harder for us to compete domestically and internationally and not
    easier for us to compete domestically and internationally.
        And that's the one question we ought to always ask ourselves when we
    make decisions in this town. Does this make it harder for us to compete
    and create jobs in America domestically, or does it make it easier for
    us to compete? So everything we do should say it makes it easier to
    compete and create jobs. And what lawsuit abuse has done is it not only
    threatens our competitiveness and innovation in the world, but it also--
    it harms our health care system; it raises the cost of health care in
    this country; it stifles innovation, et cetera.
        Last year, our Department went around the country, and we held
    roundtable discussions--some small- and medium-sized manufacturers all
    across America. And we heard this same message, with an incredible
    amount of passion and energy, not just from the manufacturers but also
    service companies as well, and that is how important it is to deal with
    lawsuit reform and deal with it now. Because it's going to impact the
    creation of jobs in this country for generations to come. It's not only
    about today's economy, but it's the economy for your children and your
    grandchildren. And it's time to deal with it now.
        Mr. President, you referred to some of the cost of tort reform or
    tort costs in this country. It represents over 2 percent of

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    our gross domestic product, over $250 billion in tort costs into our
    economy. That is a lot more than most of our--it in fact, it is more, as
    a percentage, as well as absolute terms, of those that we compete with
    around the world. The manufacturing sector bears a disproportionate
    share of that, about 4\1/2\ percent. And so when you think of the tort
    cost in manufacturing products in this country, then compare it with
    wages and salaries in the manufacturing sector--17\1/2\ percent of the
    cost of labor and wages goes--is part of the cost, where only--where
    4\1/2\ percent is tort claims. So you can see how tort costs are a very
    significant price, a cost in everything that we purchase in this
    country.
        I was in Missouri this last year, and I had a chance to really see
    up close and personal how it was impacting the health care industry. I
    talked to a David Carpenter, who is the CEO of North Kansas City
    Hospital, and what he told me was that there had been 30 doctors that
    had moved from Missouri to Kansas because Kansas had, indeed, passed
    tort reform and had put some caps in place. So you see it happening all
    across America, where doctors are moving around and trying to find a
    more friendly environment.
        Lawsuit abuse is just simply piling up cost on the backs of not just
    companies but the American people. I like to call it a tort tax. If you
    take the total cost of tort claims and judgments in our country and
    divide it by the number of people in the country, it's a tort tax of
    about $809 per capita. So in everything that we purchase, everything
    that we buy, in there someplace is a tort tax or a tort cost. And so
    it's going to continue to drive up the cost of automobiles, groceries
    that we purchase, work boots that we purchase, whatever it is we
    purchase. It's going to continue to drive up those costs if we don't do
    something about it, and it's also going to continue to stifle innovation
    and the entrepreneurial spirit.
        And what we ought to be doing is figuring out ways to lower risk and
    increase rewards, and that's exactly the opposite of what a junk and
    frivolous lawsuit does in a society. What they do is they increase risk
    and lower results so--and lower rewards.
        So for us to continue to be the most competitive economy in the
    world, the most innovative economy in the world, this is an issue that
    we must deal with--and we must deal with it now.
        Again, I'm delighted to have this outstanding panel here to discuss
    this subject, important subject and issue, and I would like to begin by
    calling on Professor George Priest, who is the professor of Yale
    University, holds a John M. Olin Professor of Law chair there. George
    will take us through some of the modern expansion of tort liability in
    America and discuss some of the reform possibilities that we ought to be
    considering.
        Professor.
        George Priest. Thank you, Mr. Secretary.
    Let me give you a little history about the expansion of liability. This
    problem of lawsuit abuse and the problem of excessive litigation is
    really pretty much a modern problem. Prior to the 1960s, tort law was
    really a backwater. It was dominated by principles of corrective
    justice; litigation was minuscule. But ideas began to change, and there
    came to be a conception that developed that tort law could be turned
    into an instrument of public policy according to which tort judgments,
    damage judgments, could be used to internalize costs, the harms the
    people had suffered, to persons and to the companies that had caused
    them.
        And so the idea was, by internalizing these costs, there would be
    incentives created to make products safer, to make other services safer,
    and also to provide a form of insurance for individuals that had
    suffered some type of harm.
        The other advantage, or the thought that there was an advantage, was
    that this could

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    be done universally. That is, safety regulation, direct safety
    regulation by agencies, applies only in a very few number of industries.
    Using tort law as a regulatory mechanism, on the other hand, could be
    applied to all activities in a society, and so it could become
    universal. And based upon this conception, courts began to expand
    liability. They began first in the products liability field but then it
    expanded to other areas more generally.
        Now, I believe that this conception, this idea of internalizing
    costs, has had some beneficial features, has had some beneficial
    effects. That is, I think that it did enhance safety and reduce harm
    over some range. But the problem that has arisen--and it really is a
    problem that arose several decades ago--is that there are limits to the
    extent to which tort law and litigation can be effective in increasing
    safety and reducing harms. But the problem is that this conception of
    internalizing costs doesn't recognize those limits, and so even though
    those limits have been exceeded, courts have continued to expand
    liability in area after area. And when liability is expanded beyond the
    point where it can really effectively encourage greater safety, where--
    beyond the point where these harms can practicably be reduced, there are
    two forms of harmful societal effects that result.
        The first is--and it's the one you were talking about, Mr.
    Secretary--that the cost of litigation has to be passed on in the prices
    of products and services. Exactly as you say, it's a tax. And it's a tax
    that every citizen has and every consumer has to pay on every product
    and service that they buy. Just to give an example--and you mentioned
    this too--in today's litigation environment, auto manufacturers are
    basically absolutely liable any time there's a serious accident. They
    will always be sued, and they will always have to settle the case in
    some way. And what does that mean? That means that auto prices have to
    increase. That litigation has no effect on safety. It has no effect on
    the redesign of automobiles. We have an Agency, NHTSA, that is charged
    with monitoring auto safety. The litigation has no effect whatsoever. It
    simply adds to the costs. And adding to the costs hurts most severely
    the low-income in the society, because they're the least able to pay
    these costs and they're the ones that get the least return. Even if they
    do litigate, the damages they receive are lower than those of other
    citizens.
        Now, in other industries, however, the results are even worse. That
    is, in some industries, liability has extended--has been extended to
    such an extent that the affected parties begin to make investments that
    are unproductive, that are not necessary, in order to try and shield
    themselves from liability. The medical industry is a good example.
    Defensive medicine is, in essence, counterproductive, and it's an
    investment that's made to try and ward off litigation for no useful
    purpose.
        And the consequences of this whole--of the regime that we've created
    here is a legal system in which litigation is available with respect to
    every activity of the society. And worse, I think--and Phil Howard will
    talk about this too--we have been developing a culture in this society,
    in this country in which it's believed that any conceivable social
    problem can be solved by litigation. And so we have litigation trying to
    deal with every conceivable social issue.
        Now, what can be done about it? Well, I think the most fundamental
    reforms have to come from the courts. It's the courts that created this
    problem, and it has to come from the courts in redefining liability
    rules. But what that means is it's extremely important to appoint or
    elect judges who are committed to tort reform. Now, what can--but there
    are other things that could be done, and there are some things that
    could be done at the congressional level, and I think the three reforms
    that the President mentioned are important reforms.
        We need class action reform. The rules that were developed--and they
    were developed in the 1960s--with the thought of

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    controlling class actions are quaint today, and there are many
    courtrooms in which there are no controls on class actions whatsoever.
    Now, the ``Class Action Fairness Act'' takes a step. What it does is
    push these class actions into the Federal courts where there is going to
    be some more control. With all respect, it's not a solution. It's going
    to help. It's a step that I think is a small step, but it's important.
    It's an important step.
        I think Federal reform in particular industries, such as in the
    medical industry, a reform of medical malpractice, is important too, and
    it's a promising reform because all of us need doctors and all of us
    know that we have to control health costs. And all of us know too and
    can see easily what the harmful effects of expanding liability against
    needed medical services is. So medical malpractice reform is important
    as well.
        Third--and you mentioned this, Mr. President, and I agree entirely--
    Congress can attempt to do something about asbestos litigation. Asbestos
    litigation is an extraordinary phenomenon. I've been studying it the
    last couple of years. It's just extraordinary. Everybody knows that
    there are hundreds of thousands of cases that have been filed and that
    there are millions more that are going to be filed. But I think few know
    exactly what kinds of cases these are. And let me just give you one
    example, and it's illustrative of what this problem is.
        A short time ago in California, a man recovered 4.5 million against
    an asbestos--a company that had used asbestos. And the only exposure
    this man could document, the only time he had ever been exposed to
    asbestos, was one day when he was the child when his mother and
    grandfather took him to their church, whose ceiling was being remodeled.
    That was the entire exposure. One day of asbestos, and he recovers 4.5
    million. This asbestos litigation is a vast system of redistribution
    within the society. And indeed, by the standards of that case, every
    American is a victim of asbestos. But I certainly would say this: It is
    not a sign of a healthy society when every citizen can qualify as a
    litigant and file suit.
        So I think there is an important need for legislation in many
    different areas to deal with this problem of excessive litigation. These
    reforms are--the three reforms that the President has talked about are
    going to be helpful. I think, again, they are small steps, but they're
    steps in the right direction, and they're steps that it's important to
    take and that every American should support.
        Thank you.
        The President. Nice job.
        Secretary Evans. Yes, excellent job.
    Professor, thank you very much, for laying that out.
        Speaking about asbestos, our next panelist is somebody who is
    personally being impacted by asbestos litigation, as are his 18
    employees and the families that they're responsible for. And so, Mike,
    an entrepreneur from Monroe, Louisiana, who runs a company there--why
    don't you give us your perspective of asbestos litigation as it relates
    to your personal situation and company.
        Mike Carter. Well, I have a business back in
    Monroe, Louisiana, Monroe Rubber and Gasket. And hopefully, I can be a
    small voice--or a big voice--for a lot of companies across the country
    that probably are in the same condition I am.
        Probably about 3 years ago, I started receiving lawsuits for
    asbestos, and today I guess I've been inundated probably with about
    upwards of 100 now. And we're a small company. We can't legally fight
    these battles, and what's happened is, over time, some of these are
    being settled out of court. We've got an insurance carrier that, back at
    that time, carried our insurance and helped us litigate some of this
    stuff over time. But the problem is, is this is going to end very soon.
    We've got about a million dollar cap. And if we have to get involved in
    a suit in court and we get

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    a verdict handed to us, it's a matter of us locking our doors.
        But these things have been coming to us and coming to us, these
    lawsuits, as it is today. I've been to Washington on a couple of
    occasions, talking to our Senators from the State. We tried to get
    something passed within the State and failed to do that. But that's not
    stopping the lawsuits. We're neither a manufacturer nor an end user. All
    we've ever done and the thing we're guilty of is buying what we thought
    over the years was a safe product and reselling it to an end user
    customer who asked for the product by name. And now, because all of the
    bigger corporations and the manufacturers have either gone bankrupt or
    filed--or gone out of business, now they're going to that next tier of
    companies, which is people like us, and they're pulling us into this
    trap.
        And we can't afford to fight this. The last couple of times I've
    been to Washington, I pleaded with the people I thought could get
    something done, and I told them this may be the last time I'm here. I
    don't know how long this will go on. I've got probably seven or eight
    court dockets this next year, and if I have to go to these--that's not
    to say I'll ever be back again. And hopefully, this is going to be an
    opportunity for me, like I say, to be just a voice for the small
    business across America, and then hopefully, we can get something done
    this year.
        It's just--it's unfortunate that I've had to spend hundreds of hours
    of my time away from the business trying to fight this stuff, trying to
    get somebody to listen and to make a difference with what we're doing.
    All we're trying to do is run an honest business, and we've done that
    for so many years, and it's just a shame that something like this can
    take all that away from you. And after we're gone, there's really nobody
    out there to hear you anymore.
        And it's just becoming increasingly difficult to do business. And as
    we go out now and try to buy products from other companies, they tend to
    see our name on the--I guess the Bradstreet--Dun & Bradstreet, as having
    all these suits against us. They don't want to open us any lines of
    credit. We've reduced the amount of employees. We're just not rehiring,
    is what we're not doing. We've had probably five or six more at one
    point; we've got about 17 now. And we're trying to grow our business
    into other States. We can't do that because we just don't know what
    direction this is going to turn, and we don't want to get more in the
    pot now than we have. So it's affecting us in a way that we're not able
    to grow any more. We just--it's just a continuous fight, and we can't do
    anything. They just keep coming; the lawsuits keep coming.
        And we're getting suits from people--the ones we're getting them
    from are end users, the mills, the chemical plants, the paper industry,
    that worked in those particular plants back years ago. And these trial
    lawyers, they'll come, and they'll set up a little hub and have these
    people come in--and do the advertising prior to them getting there--have
    them come in, run a quick test on them. If they show anything in their
    lungs--which any of us could have something on our lung, be it from
    smoking, be it from pollution, whatever it is--but they all of a sudden
    qualify to be in the suit.
        And as this stuff continues to grow like this, it's--they will
    couple one or two sick people with 10 or 15 nonsick people and run them
    through the courts. And you know, in the South, we're known to have very
    sympathetic juries. And don't get me wrong, I'm very--extremely
    sympathetic to those individuals that are sick, and I think they need to
    be taken care of. But the problem is, 90 percent of the people filing
    suits today are nonsick individuals. They've just been exposed. And I
    think everybody in this room has been exposed to asbestos if you've ever
    walked through a school hallway or you've ever been anywhere. I mean,
    it's just the way it is. But to allow this

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    to happen, those 90 percent of the people, nonsick that are getting this
    money right now, over the 10 percent of the people are not getting it,
    and they're the ones that deserve it.
        But then again, I think those people should be responsible--that
    created this. And we, as just an honest-ran business, have not created
    this problem. And the gaskets and the things I've sold to these plants--
    we've had people come in and actually gauge us cutting the gasket out of
    the sheet, and there's no harmful asbestos dust or nothing in the air.
    But because during that timeframe we had asbestos beside our name,
    they're coming after us.
        Secretary Evans. Mike, thank you very
    much. I appreciate your story.
        The President. Let me make a comment on that. First of all, justice
    ought to be fair. And those who have hurt ought to have their day in--
    those who have been hurt ought to have their day in court. But a
    judicial system run amok is one that makes it really hard for small
    businesses to stay in business. And I appreciate you sharing your story
    with us. It's a--frankly, a painful tale to listen to because--what
    makes it even more painful, there's a lot of people like you.
        Most new jobs in America are created by small-business owners. And
    when you hear a small-business owner talking like that, and he says we
    got a problem we'd better address now before it's too late--thank you
    for sharing it with us.
        Mr. Carter. Thank you.
        Secretary Evans. Yes, it's painful not
    only for you but the 18 employees and their families that you're
    responsible for. And we hear your story.
        Here's a man that's responsible for about 350,000 employees. And Bob
    Nardelli of Home Depot, why don't you give everyone kind of your insight
    as to the lawsuit abuse, the impact on your employees as well as on your
    company.
        Robert L. Nardelli. Well, thanks.
    First of all, Mr. President, thank you for this opportunity--Secretary
    Evans--to participate on what I think is probably the most important
    panel on the high cost of lawsuit abuse in the overall economic
    conference that, Mr. President, you've called together, the next couple
    of days.
        I think what all of us in this room probably share--I think one of
    the things that we really want to try to make clear, and I'm going to
    reinforce in some of my comments what we've already heard--is that we're
    really not asking to be resolved--or absolved of our responsibility. All
    we're asking for is fairness, Mr. President, just as you said.
        Lawsuit abuse is not a talking point anymore. I think it's a sore
    point for all of us and one that has to be addressed. Let me just put it
    in perspective, Mr. Secretary. Our customers, our 350,000 associates, as
    you've mentioned, and our supplier base, our shareholders of the company
    that I run and the company I love, are really being hurt every day.
    They're being hurt every day by a legal system, quite honestly, that's
    abusive. It's abusive to small businesses and big businesses alike.
        I think there's excessive and unreasonable awards each and every
    day, that our taxpayers are paying more, Americans are being denied, Mr.
    Secretary, as you said, the essentials of goods and services and,
    perhaps most importantly, good paying jobs, wages, slowing investment
    growth, which is really dampening the entrepreneurial spirit of our
    country.
        Let me give you an example. I like to think facts are friendly. The
    U.S. tort system basically costs every American about $2,400 a year,
    based on a recent survey that we looked at. Let me put that in Home
    Depot terms. That would allow every family to buy a kitchen and a
    complete home of appliances, refrigerators, washers, dryers, range,
    microwaves, et cetera.
        So when I look at this issue, I basically see about three pressure
    points that I want to talk about today. First, it's the hijacking

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    in broad daylight that the tort system calls the class action lawsuit.
    The second is the seemingly endless story of excessive awards in
    asbestos litigation. We just heard Mike talk about that. And third, it
    is the excessive awards in medical liability suits. Quite honestly, it
    won't be long before we see a line item on every doctor's bill that's
    handed out in this country for litigation.
        I think what all three of these have in common, unfortunately, is
    that there's a fair and reasonable solution in hand just waiting for
    implementation. That's what makes it so maddening, I think, to all of
    us.
        Let me expand. The class-action dilemma is probably a good place to
    start; it--since it's a trial bar who really reaps the reward. How many
    of you in this room have received a check for $1.18 in recognition for
    your participation in a class action suit that you didn't even know you
    were part of? And what really happens is the millions of dollars go to
    the lawyers. So is justice really being served, is the question. In
    fact, I think only 20 cents of each dollar actually goes to the
    claimants for real economic damages and lost wages and medical expense.
        So what you have today is business on one side, and you've got the
    trial lawyers on the other side. And you have the worst combination of
    all: You've got deep pockets colliding with shallow principles.
    [Laughter]
        Let me make another point, if I can, on this magnet court system.
    There's a place like Madison County, Illinois, and I think a lot of us
    know of that. There's been a 5000 percent increase, 5000 percent
    increase in the number of class action filings since 1998. You know, the
    issue at hand may have nothing to do with anybody in that county or that
    community, but the fact is, it hasn't stopped 49 other States from
    filing into that county.
        So we really have, you know, quite honestly, I like to use the term,
    it's a ``speed trap'' for American civil litigation. I think that's kind
    of what we would classify it. So if we move, I think, as George said,
    our class actions into the Federal courts, with standard rules from
    coast to coast, we have a chance at getting things a little more fair, a
    little closer to fairness. And people who have been hurt will certainly
    have the ability to get damages and get recovery, but in a much more
    fair environment, less abusive environment.
        So if we continue to leave these issues, as I see it, of national
    importance to the whims of the greedy, Mr. President, instead of the
    needy, we're going to continue to have a huge price in this country to
    pay for abusive litigation.
        Let me kind of close out and make a few final comments. That's why I
    think that this ``Class Action Reform Act'' is so important to be
    passed. I think it's great that we've had a lot of bipartisan support. I
    think what we need is some bipartisan action, Mr. President, as you said
    in your opening comments. Also, I would take this asbestos litigation--
    and we would classify it as the gift that just keeps on giving to trial
    lawyers, 30 years and no end in sight. According to RAND Institute, 70
    billion has been spent on asbestos litigation, 200,000 claims have been
    filed against 8,400 companies since 2002. So we see that continuing to
    grow.
        The ``asbestos war,'' if you will, seems to be waged on--67 American
    companies have been put into bankruptcy. Now, here's the way I kind of
    like to look at that, is, while the lawyers are attacking corporate
    America, it's corporate Americans that are suffering. That's the issue.
    And we've had 60,000 corporate American jobs eliminated as a result of
    that.
        So let me just conclude, Mr. President, and I really think that
    something has to be done. There's no better person to do that than you,
    in this term, in your second term. And we're tickled to death that your
    exodus was postponed for 4 years, let me say that. [Laughter] A great
    deal has been said about this issue, but I think the time is now. I
    think the emotion is high, and I'm here, Mr. President, to join you in

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    leading the charge for relief from what I'll call trial lawyer tax.
        Thank you for the opportunity.
        The President. Good job.
        Secretary Evans. Thank you, Bob. Bob,
    thank you very much. I think you're right. And when you talk about
    lawyers being on one side and business being on the other, and it's the
    families that are paying the price, the hard-working Americans. They're
    the ones caught in the middle. They don't always see it because they
    don't see the line item. Maybe it's on a medical bill. Maybe it ought to
    be on a lawnmower someday. What's the additional cost of a lawnmower
    because of tort costs.
        Hilda, thank you so much for being here. Hilda Bankston. She's got a
    wonderful story to--it's a heartbreaking story to tell, but it's
    certainly a very moving story about the drugstore that she and her
    husband built in Fayette, Mississippi.
        Hilda Bankston. Yes, sir. Thank you for
    the opportunity, Mr. Secretary.
        My name is Hilda Bankston. I live in Fayette, Mississippi. I came to
    the United States from Guatemala in 1958. I met my husband, Navy Seaman
    1st Class Mitchell Bankston while I was in the Marine Corps. When we got
    married, we fulfilled our lifetime dream of buying and operating a
    pharmacy. We worked hard, and my husband built a solid reputation as a
    caring and honest pharmacist in Fayette.
        But one day, lawyers who were looking for--to strike it rich in
    Jefferson County, shook our world and dreams to their foundation.
    Bankston Drugstore was named as a defendant in a national mass action
    lawsuit, putting Jefferson County against two of the biggest
    manufacturers' drug companies, the manufacturers of Fen-Phen, FDA drug
    approved for weight loss. Though Mississippi does not allow for class
    action lawsuits, it does allow for consolidation of lawsuits in mass
    action.
        Since ours was the only drugstore in Jefferson County and had filled
    prescriptions for Fen-Phen, the plaintiffs' lawyers could keep the case
    in a place already known for its lawsuit-friendly environment.
    Overnight, our life's work had gone from serving the public's health to
    becoming a means to an end for trial lawyers to cash in on money-making
    class action lawsuits.
        Three weeks after being named in the first lawsuit, my husband of 35
    years, who was 58 years old and in good health, died of a massive heart
    attack. Since then, we have been named in more than 100 mass actions
    against national pharmaceutical companies over a variety of different
    drugs.
        I had to sell the pharmacy, but I still spend countless hours
    retrieving records for plaintiffs' lawyers and getting dragged into
    court again and again to testify. Attorneys handling these claims
    compare their actions to winning the lottery.
        The lawsuit frenzy has hurt my family, my community, and the State
    of Mississippi. The county's reputation has driven liability insurance
    rates through the roof, and businesses no longer locate there for fear
    of litigation. No small business should have to endure the nightmare I
    have experienced. I'm not a lawyer, but I know something is wrong with
    our legal system when innocent bystanders are abused in the way I was.
    Please, pass action to reform legislation to help fix our lawsuit system
    before more small-business owners and their families will get hurt.
        Thank you, Mr. President. Thank you, Mr. Secretary.
        Secretary Evans. Thank you, Hilda, very,
    very much.
        Philip Howard, partner with Covington & Burling, author of the book
    ``The Death of Common Sense''--Philip will provide an overview of the
    medical liability explosion in our economy.
        Philip K. Howard. Thank you, Mr.
    Secretary, and I really appreciate the openmindedness of you and the
    President in allowing a practicing lawyer to join your panel. [Laughter]
        We forget sometimes why law is the foundation of freedom, and it is
    because

    [[Page 3086]]

    it's supposed to be reliable and people can count on it in their daily
    lives. They make some choices in a free country to move forward with
    their lives, whether it's to make investments or deal with others or
    volunteer on the playgrounds or in Little League. Law is supposed to be
    there to affirmatively defend reasonable conduct.
        The law in this country is no longer reliable, and the cost of it, I
    submit, is far greater than anything any of you have talked about today.
        And so, let's go to medical liability. We have heard, and you are
    going to hear again how horrible it is when our best trained
    professionals, physicians, get driven out of business. One out of seven
    obstetricians in this country are no longer practicing obstetrics. One
    out of four people in Pennsylvania last year had to change their doctors
    because they either quit or moved out of the State. That's because of
    the direct cost of litigation in this country. But that's only the
    beginning. The cost of health care is out of control. We can't even talk
    about containing the cost, but who's going to not order an MRI that
    somebody demands if you might get sued for $10 million for doing it.
        This group, Common Good, that I founded a couple of years ago hired
    Harris Poll to survey all the doctors. Four out of five said that they
    admitted to ordering tests that they didn't think were needed. It is now
    part of the practice to waste money. We can't afford that. We've got 45
    million people who don't have insurance. We have--and more every day
    because small businesses can't afford it. You can't contain costs, you
    can't provide health care for everybody until you have a solid
    foundation of justice that people can count on.
        Quality--all of the quality experts have joined our coalition
    because their studies show them that the quality of health care in this
    country has suffered, and it has suffered because doctors and nurses no
    longer feel comfortable speaking up. They're afraid they may be taking
    responsibility.
        So, you get--and at the same hospital where you get miracle cures,
    you'll have some mistake in a prescription, where somebody gets 500
    milligrams instead of 5 milligrams. Studies are all--tragedies occur
    because people are afraid to speak up because they don't trust the
    system of justice. It's defended on the basis that it holds bad doctors
    accountable. Well, in fact, it does just the opposite. The current
    system of law--and it's true with unreliable law, generally--favors
    whoever is in the wrong.
        And so if you're a doctor--if there's a doctor who is no good--and
    every hospital has this story--you try to fire them. What do they do?
    They hire a lawyer. They sue, or they threaten to sue. And the typical
    result is that they're allowed to keep practicing because people don't
    want to go through the 5 years of litigation for it to happen.
        So what is needed here is far more than just--what is needed is to
    restore reliability. We need the rule of law back again. And I subscribe
    to everything that George--my friend George Priest said over there and
    the other panelists as well. We need to look at this not as a problem of
    just of business or just of doctors; we need to look at it as a problem
    for the whole society and what it means to live under the rule of law in
    a free country.
        Thank you.
        The President. Good job.
        Secretary Evans. Thank you. Excellent
    job, Howard.
        Barb Coen, Andy Kazar, both of Generations Women's Health Care out
    of Norton, Ohio. We certainly appreciate you being here to talk about
    your story. Barb and Andy will explain how medical liability crisis has
    caused, one, Barb to quit delivering babies, and the other, Andy, to
    lose her doctor.
        Barb.
        Barbara L. Coen. Thank you, Mr.
    President and Mr. Secretary, for the opportunity to be here today. I
    appreciate the fact,

    [[Page 3087]]

    Mr. President, you've kept your promise to help physicians take better
    care of patients by getting rid of the medical liability problem that we
    have in this country.
        I am an obstetrician-gynecologist who can longer call herself an
    obstetrician. Three years ago, my partner, Dr. Susan Clark, and I
    started a small practice called Generations Women's Health Care in
    Norton, Ohio. We had the help of Barberton Citizen's Hospital for 2
    years. At the end of 2 years, we were to be independent from the
    hospital and be operating on our own. At that time, we decided to look
    for medical liability insurance and were stunned to find that our
    premiums were going from $60,000 for our current space malpractice to
    $118,000 for claims-made liability.
        At that time, we had 110 pregnant women in the practice and had 3
    weeks to tell them they they had to find a new physician. Anyone who has
    ever had a baby understands the relationship between the obstetrician
    and that patient is so special. They're trusting you with their most
    precious possession, the life of that child. And it was awful to call
    those patients and tell them we couldn't take care of them. I got notes
    saying, ``I promise I won't sue you. Please deliver my baby.'' It was
    absolutely heartbreaking. Some people were due the next week. It's an
    awful system that needs to be reformed.
        The things that bother me the most about the medical liability
    system in this country right now is the Trial Lawyers Association will
    come out and tell you that medical liability is only 1 to 2 percent of
    health care costs every year. Well, when health care costs are $1.2
    trillion, I think if you told anybody in this room, ``Your salary next
    year is going to only be 1 to 2 percent of the national health care
    cost,'' it would be a substantial raise, wouldn't it? I mean, I think
    we'd all be pretty excited to be getting that.
        The other thing that bothers me is 80 percent of frivolous--of
    lawsuits against physicians get thrown out. What if I was only right 20
    percent of the time? What if that was the standard I was held to? I see
    30 patients a day. What if I only got it right on six of them? What's
    going to happen to the other 24? I think we need to hold these people to
    a higher standard, the same standard that physicians are held to. And I
    appreciate the fact that you're all working on reforming the system.
        Thank you.
        Secretary Evans. Thank you, Barb. Thank
    you very much. Nice job. Andy?
        Aundria D. Kazar. My name is Andy, and
    thank you, sir, first of all, for having us here and letting us tell our
    stories. I appreciate it. I'm, as you can't tell, 32 weeks pregnant, and
    am also the practice manager for Drs. Susan Clark and Barbara Coen. When
    the decision was made at the end of August of '03 to no longer do
    obstetrics because looking at it, you know, financially it wasn't
    feasible, it was like, ``Oh, that's okay, I can still see them.''
    They've delivered my other two children, and I think anyone here knows
    the relationship that you have with your physician--you tell them stuff
    that you don't tell anyone.
        And so with Barb and Sue doing my other two deliveries, it was like,
    ``Oh, we're not going to have any more kids. I'll get through this, no
    big deal.'' Well, May, we're having another child. And it came to an
    issue of now who am I going to have, because the women that I trust more
    than anything else in the world, who have entrusted in me to run their
    practice and pay their bills and hire the employees and deal with
    patients--I can't go back to them for my most important thing that's
    going to happen to my husband and I.
        So we decided that we needed to go find someone else, obviously,
    since they can't deliver me, even if I sign a piece of paper. We made a
    choice to see a midwife. And we have a wonderful midwife that we're
    seeing, but we were informed on Friday that the physician that backs her
    may not be continuing to practice.

    [[Page 3088]]

        So now, again, at 32 weeks pregnant, we are now on the look for
    another provider of service. And I don't feel that anyone should have to
    go through this. I mean, I know most of the physicians in town because
    of working in medicine for so long. I don't know how the normal, average
    person who doesn't can go and say, ``Okay, how do I pick this doctor?''
    You know, ``Oh gosh, are they going to be here in 6 months?'' They're
    leaving--the physicians are leaving in mass exodus out of Ohio, because
    it's not cost-effective to run a practice there. And something needs to
    be done. And I'm asking you, please.
        Secretary Evans. Andy, thank you.
        The President. It's not the first time she's asked. Can I make a
    couple--I'm the President.
        Secretary Evans. Oh, hold on just a
    minute. [Laughter]
        The President. I met these two
    ladies before in Ohio. Philip said that one
    in seven doctors are leaving. In certain States, the number is much
    higher than that, and in certain specialties, the numbers are much
    higher than that. And just a couple of observations.
        When I came to Washington, I thought that medical liability reform
    was a State issue. I was a Governor and a person who said, ``We can do
    it better at the States than the Federal Government.'' It turns out, so
    far the States who have had medical liability reform have done it better
    than the Federal Government because we haven't done anything yet at the
    Federal level. Nevertheless, I looked at the impact of the defensive
    practice of medicine, at the unnecessary tests that doctors prescribe in
    order to make a defense when they get sued--not if they get sued but
    when. The odds are they'll be sued, and it costs the Federal budget
    about 27 billion a year.
        And so when you cite the statistics from the trial lawyers, what
    they don't talk about is the defensive practice of medicine as a cost to
    society. There is a direct cost to the taxpayers. It's a quantifiable
    number. It's a lot at 27 billion a year. And so I decided it's a
    national issue that requires a national solution.
        You know, there's a lot of rhetoric when it comes to medical
    liability reform about accessibility and affordability of health care.
    It's a nice mantra. We all should be for accessibility and
    affordability. And so should Members of the United States Senate who
    have blocked medical liability reform to date, because these lawsuits
    are driving really fine, competent people out of the practice of
    medicine--like Barb--which makes medicine
    less accessible.
        And then you heard not only the cost to our budget but the cost to
    an individual doctor to practice medicine is passed on to patients,
    which makes medicine less affordable. We need medical liability reform.
    This is a vital issue for the quality of life of thousands of people in
    our country. And I want to thank these two
    women for joining us again. I met them
    first in Canton, Ohio. They were just as articulate there as they are
    here, and their case is, unfortunately, one that's being repeated in
    many States around this Nation.
        And so I told you then and I'm going to tell you again: This is a
    priority issue for not only me but for a lot of people in the Senate. I
    say the Senate--it will pass the House. It is being blocked by a few in
    the United States Senate, and the trial bar has made this the number one
    issue for them. But it's, as I think you mentioned, Hilda, the notion of a lottery--we cannot have the legal
    system to be a legal lottery. We want the legal system to be fair and
    balanced so people can get good health care, so small businesses can
    afford to stay in business, so we don't hear these horrible stories
    about someone drug through this class action meatgrinder that has caused
    her and her--to go out of business.
        And so I want to thank you for all coming. I am passionate on the
    subject because I want America to be the best place in the world for
    people to find work or to

    [[Page 3089]]

    raise their family or to get good health care. And I can assure you all
    that I intend to make this a priority issue as I stand before Congress,
    when I give the State of the Union, and as I talk to leaders of the
    Congress about what I think ought to be done in the upcoming legislative
    session.
        Secretary Evans. Do you want to say
    anything else? [Laughter]
        Thank you, Mr. President. You know, I'm also glad that this issue is
    going to be right at the center of every kitchen table all across
    America, because it's those Americans that are getting impacted by this
    in such a serious and harmful way, and they need to be sending the
    message to Washington, how they also want something done about it.
        Well, we've got a few moments here for a couple of questions.
    Professor, let me come at you, if you don't mind, just for a minute. Can
    you share with us an example of how plaintiff attorneys are using
    leverage to threaten companies with settlements? And in addition to
    that, I notice where you have taught in the past--capitalism, insurance
    policy, tort law, product liability, but you've added a new course
    called ``economic development.'' Are we starting to put this together
    finally in America, how this litigious society that we are in is having
    a dramatic impact on economic development in our country and job
    creation in our country?
        Mr. Priest. Oh, I think it does have a
    dramatic impact on economic development in this country. What my course
    does is look cross-culturally, across countries to see how--to see what
    the determinants of development are. But I think there is no doubt that
    it's our litigation system that's dragging our country behind and
    keeping it from developing even faster.
        Now, on your question about tactics that lawyers use, can you give
    me 2 or 3 hours--[laughter]--I could answer that. Actually, the class
    action is one of the most powerful tactics that trial attorneys use. You
    know, for all of the class actions that are filed, there are very few
    that are ever litigated. There are some litigated in the discrimination
    field, but of mass tort class actions, they're never litigated. They're
    not even anticipating litigating them when they file them. It's simply
    such a bludgeon that it's known that if the class is certified, which is
    a kind of legal technicality that doesn't--purportedly doesn't look at
    the merits of the case, then the companies that are sued have to settle,
    because, as Mike has pointed out, they have to settle the case, because
    otherwise the company's going to go down the drain because of the stakes
    involved in the case.
        So there's this ideal of a class action of representing a wide set
    of consumers repairing wrongs at a small level over a wide number--it
    doesn't work that way. It's almost entirely a bludgeon as it's currently
    being employed by the trial lawyers.
        The President. Let me ask you something.
        Mr. Priest. Sure.
        The President. You said that the pending legislation--I think you
    referred to it as a ``small'' step or a ``better'' step? There was an
    adjective which, frankly, wasn't a ``huge'' step. [Laughter]
        Mr. Priest. It's not a huge step, no, no,
    no.
        The President. All right. Well, let me ask you something: What
    should Congress do? I mean, for example, in the class action--the bill,
    as I understand it, takes it from the States--makes it more difficult to
    keep it in the State court and moves it to the Federal courts,
    reflecting the interstate nature of the lawsuits, which therefore make
    it more difficult to achieve these--help me out here.
        Mr. Priest. Well, what it does is take it
    out of the bailiwick of the Madison Counties and the Jefferson,
    Mississippis, that--where local judges who have close ties with
    plaintiff attorneys--I don't want to use the word ``conspire,'' but they
    have

    [[Page 3090]]

    a mutually symbiotic relationship--[laughter]--in letting these class
    actions go forward.
        The President. Got that part.
        Mr. Priest. So it will help to send the
    case to an Article III judge, who--in the Federal courts that operates
    differently. But that's not going to solve the problem.
        The President. Right. And so you said--help us with some solutions.
    Here's your chance.
        Mr. Priest. The most important solution in
    class actions--but it's going to take more than the Congress; the courts
    are going to have to go along with this too--is to have--before
    certification--to have the courts evaluate whether there's any merit to
    the class action or not.
        The President. Got you.
        Mr. Priest. I mean, the problem--even
    class actions that are certified at the Federal level can operate as
    bludgeons against the defendants who face them. Now, it's harder to get
    it certified at the Federal level, and that's the benefit, the step that
    would be taken by the class action legislation that is currently on the
    table. But it's only a step. It's not going to solve the entire problem.
        And what really has to be done is to get the--what you call junk
    litigation, the frivolous litigation, the litigation where there's
    really no merit to the underlying litigation and it wouldn't succeed if
    it were litigated, but it's too dangerous for the defendant to find that
    out and to gamble on whether--gamble the entire company on whether its
    lawyers or the opponent's lawyers are going to be more successful before
    the judge.
        Secretary Evans. Phil, do you want to
    jump in here?
        Mr. Howard. Yes, I do. I mean, judges
    in America today don't have the idea that part of their job is to
    actually draw the boundaries of what's a reasonable or excessive claim
    or what's a frivolous claim or not. People bring a claim, and they act
    like referees. I was debating the McDonald's hot coffee judge--on Oprah,
    actually. [Laughter] It was really fun. But during a break he said,
    ``You know, your theories are fine, but who am I to judge?'' [Laughter]
        And there's this idea out there that justice is kind of an open
    season. Well, it's not. The rule of law requires deliberate choices.
    This is a valid claim; this isn't. This is an excessive claim; this
    isn't. No one is making those judgments today, and the people who are
    the victims are all Americans. Every day when they're in the classroom,
    when they're going through their jobs and they're not saying what they
    think, or they're not taking the kids out on field trips because they're
    scared--they're scared because they don't trust the system of justice
    because the judges aren't doing their job.
        Secretary Evans. We just have a few
    moments left, and I want to come over here to Mike and talk about jobs
    for just a minute, because you really represent the backbone of the
    American economy. You're a small business. They generate 70 percent of
    the new jobs in America. Give us a feel of how this is impacting your
    ability to create jobs or hire more employees. Can you give us any sense
    of that?
        Mr. Carter. Well, it's impacting us directly
    because we're not able to grow our business like we would like to grow
    it. We can't man our business like we would like to man it. And as far
    as trying to grow into another sector, into another State possibly, and
    have a business--you don't know if you're setting yourself up for the
    fall. I mean, it scares you to try to grow anything. And when you get to
    a point like that, it's tough when you feel like you want to be
    aggressive, and you've got to just kind of hold back and pull the reins
    and sit there and wait to see how this stuff is going to unravel. It's
    just created--and there are so many companies across the United States
    in the same position that I'm in, but we've just not had anybody hear us
    yet. And it's just a great opportunity,

    [[Page 3091]]

    Mr. President, to be here and be able to tell you this, and Mr.
    Secretary as well----
        The President. Thanks.
        Mr. Carter. ----to get this voice out. And
    hopefully this year or sometime in the near future, something can be
    done on this, and get this straightened out to where we can go on and do
    what we do best, and that's run our businesses and grow our companies.
    And until that happens, we've got to kind of hold back and wait and see
    what happens with this because if we end up in one court with one
    verdict, like I say, we're upwards of 100 different lawsuits right now,
    and we just got pulled into a class action as well. And we just don't
    know----
        The President. Let me ask George something
    here.
        You've studied the legal systems of different countries compared to
    the United States?
        Mr. Priest. Yes.
        The President. Give people a sense for the difference.
        Mr. Priest. Oh, well, it's entirely
    different. Most legal--there's no legal system like the United States.
    There is no legal system that has anywhere near the magnitude of
    litigation measured in any terms, per capita, according to gross
    national product. No, no, no, we're by far the most litigious society
    that there has ever been.
        In Europe, for example, one of our great and growing competitors,
    litigation is nothing like this. Decisions are made chiefly by judges.
    They don't have juries, which is a difference. And I'm not saying we
    ought to get rid of juries. But it is a much more controlled and defined
    legal system. The numbers of lawsuits are miniscule compared to the
    United States. And what's happening, of course, is--I mean the Europeans
    know; the Europeans aren't fools--they're coming to the United States
    and trying to sue in the United States courts for losses that they have
    suffered there. And some of our courts are entertaining these lawsuits.
        And it's not just the Europeans. We're having lawsuits brought in
    the United States from citizens all over the world because, again, in
    terms of litigation, if you're a plaintiff, this is the land of
    opportunity. [Laughter] That isn't what our country has been about, of
    course.
        Secretary Evans. It's really an
    industry, yes.
        The President. I think it's important for people to understand that,
    particularly people who are going to be deciding the fate of these
    bills, that we live in a global economy, that we either have a
    disadvantage or advantage based upon our regulatory system, legal
    system, capital system. And this is an area, clearly, where we have a
    disadvantage relative to competitors.
        Mr. Priest. Can I add one thing?
        The President. Yes.
        Mr. Priest. With regard to each of the
    three reforms that you've talked about, Mr. President, those aspects of
    the legal system don't exist in Europe or any other place in the
    developed world. There are no class actions in Europe, England,
    anywhere. There are--there's no malpractice liability to the extent we
    have it here against doctors. Typically, there's no lawsuits at all
    against doctors because they're a different--it's a different form of
    system. And, third, there's no asbestos litigation. Again, the only
    asbestos litigation of any magnitude in the world is here in the United
    States.
        Secretary Evans. Let me ask you about
    Canada, which happens to be our number one trading partner. How would
    you stack up----
        Mr. Priest. Canada--well, Canada is a
    good--it's a good case, actually. Canada comes from an English legal
    environment. The jury system doesn't exist over a very wide range. There
    are some juries, not very many, as in England. There are different sets
    of procedural rules, such as the loser pays. If you file a lawsuit and
    you lose the case, then you've got to pay cost to

    [[Page 3092]]

    the other side. And so there has been nothing like the litigation
    explosion that we've seen here over the last three decades in Canada--
    nothing like it.
        Now, Canada is starting to change a little, and they're starting to
    entertain different forms of justice much like they see in the United
    States, and that's not to the benefit of Canada, and it's not to the
    benefit of Canadian growth. But their way--in terms of this litigation
    explosion, they're not--it's not close. It's not close.
        Secretary Evans. Bob, one last
    statement.
        Mr. Nardelli. Let me just make two
    points if I can. I think this whole issue about corporate America,
    outsourcing America, that isn't the case at all. And it's not even
    foreign countries winning jobs. This is about lawyers pushing jobs out
    of this country. And Mr. President, you said this continuum from
    supplier to redistribution, I mean, it's just added cost. Everybody has
    to pile on.
        And I--to Mike's point, let me just say, in America today, where
    corporations would normally reach out and help these corporate Americans
    who, through no fault of their own, are losing jobs, because this
    continuum of responsibility or liability, acquisitions aren't being
    made. People aren't reaching out, because the minute you make one of
    these acquisitions, you take on that full responsibility. So it's really
    stagnating entrepreneurship and capital investment.
        Secretary Evans. Bob, how does it impact
    your decision as to where you're going to locate your next plant and the
    American workers that you would therefore hire?
        Mr. Nardelli. Well, we do a pretty
    rigorous job of identifying family formation per capita--for family
    income and so forth, Mr. Secretary. So we pretty much have to go where
    the customers are, in spite of these, what I'll call ``swampland''
    jurisdictional areas. We'll still put a store in there because we're
    trying to serve our customers. It's a market-customer-back approach. But
    I would tell you that the cost, all the way up the supply chain, of
    everything that's been talked about here today just keeps piling on. And
    while we keep fighting to bring value to our customers, I think they
    become disadvantaged in this--just to take an example, of $2,400. You
    know, their standards of living are impacted because of this.
        Secretary Evans. Thank you very much.
    Well, I just thank all of you--audience, everybody else--for coming. I
    think it gave us a chance to zero in on probably one of the central
    issues as it relates to economic growth and job creation in this
    country, not only in the near term but for generations to come. We
    appreciate all this insight very, very much. And believe me, we're going
    to work as hard as we can to make sure that Congress understands your
    message, your thoughts, and we get meaningful tort reform passed in this
    upcoming session.
        Thank you all very much. Appreciate it.

    Note: The discussion began at 1:32 p.m. at the Ronald Reagan Building
    and International Trade Center.